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Earnings and Cash Flows

  • This segment has focused on earnings; when reporting earnings management has certain discretion over the treatment of gains, losses, and expenses.
  • Cash inflows and outflows can provide the analyst with a more objective view of the company’s economic reality.
  • Analysts should compare trends in net income with trends in cash flow from operations and may be rightfully skeptical of firms that report trends in earnings growth which are not matched by similar trends in cash flows from operations.
  • Summary of cash flow treatment under GAAP and IFRS
    Interest Received Operations Operations or Investing
    Interest Paid Operations Operations or Financing
    Dividends Received Operations Operations or Investing
    Dividends Paid Financing Operations or Financing
    Taxed Paid Operations Operations, Investing or Financing
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